Executives Share Insights to Attaining Full Benefits of Offshoring

Highlight other sourcing alternatives at The Hackett Group's conference

Highlight other sourcing alternatives at The Hackett Group's conference

Atlanta, GA — January 12, 2005 — While many companies attempt to cut costs by simply moving work to an offshore outsourcer, the formula for reaping benefits by improving business process sourcing is much more complex, according to executives at a recent conference held by The Hackett Group, a business advisory firm.

At the one-day conference, entitled What's the Right Sourcing Mix — Shared Services, Offshoring, and Outsourcing, executives offered more than 150 attendees an array of insights based on their experiences with alternative sourcing options.

One key element to success, according to presenters, is to analyze end-to-end business processes carefully and consider a range of possible sourcing options before deciding if one or perhaps several implemented in combination will best serve the company's needs.

Several speakers also emphasized the importance in understanding core competencies and that companies should make sure they keep activities relating to their core business value in-house as they consider sourcing options.

In addition, they explained that it is critical to build a comprehensive business case and strategic implementation plan that takes into account issues far beyond cost, including senior executive buy-in, governance and how to build a truly cooperative relationship with the business partner.

According to Hackett Chief Research Officer Richard Roth, Companies that reap the most benefits from making changes in business process sourcing do it by breaking down organizational silos and looking across their company to determine how best to structure an end-to-end process, whether it's procure-to-pay or IT network management, within their enterprise. They determine what the right sourcing choice is for each individual business process. The answer is often a mix, with some processes handled by the business unit, some done onshore, some offshore and perhaps some work being simply eliminated as unnecessary.

At investment firm Piper Jaffray, Michael Duffy, chief information officer, recently drove a major outsourcing initiative, shifting network management and data service center capabilities to Unisys. A key part of this decision was a value-analysis. If it's not core in your business, then outsource it, said Duffy. While data center activities were critical to Piper Jaffray's operations, The question is, can Unisys do this better than Piper Jaffray? I'd say absolutely. Outsourcing these areas allows me to focus on my trading environment and my private client environment, where the value comes from.

Building a Business Case

The cost savings from making business process sourcing changes can be significant. By shifting its IT support operations to shared service centers in four low-cost labor markets worldwide, ON Semiconductor estimated that it cut staff costs by 70 percent, Chief Information Officer David Wagner told the conference. But potential cost savings are not always obvious. In some cases, speakers said they found that although they had moved finance operations to a shared service center and seen significant cost reductions, benchmark studies with The Hackett Group showed them that there was still tremendous room for additional savings through process improvement and automation.

But conference presenters stressed that cost is far from the only factor to consider when making business process sourcing decisions. With a 110-year history as a company, Piper Jaffray evaluated many other factors before making its outsourcing decision. When you are really looking for a partner in a business, you've got to make sure that it's a good culture fit, said Duffy. Piper Jaffray chose Unisys because of its relevant experience, ability to service the company locally, and a feeling that they could trust the company. We took very seriously the ability to listen. Unisys clearly listened to what our needs were and went from there.

Governance and Executive Leadership

Presenters also stressed the role that governance and executive buy-in play in making shared services and outsourcing arrangements work. Lafarge North America, a construction materials company with $3.6 billion in annual revenues, embarked on a shared services strategy for finance in 2000. But in part because the company was unable to put a strong governance structure in place, it saw few gains. "We had no real measurable cost savings and senior management was dissatisfied," explained Randy Hoffman, Lafarge's vice president LCM Financial Services Centre. "We had multiple processes and little accountability through the organization for process. We had no defined process ownership, and, as a result, we did not have a good relationship with our business units."

With consulting help, Lafarge implemented a comprehensive governance model that integrated high-level executive sponsorship, a steering committee, and a customer board. This team was able to make major changes in how the shared service center operated. Detailed service-level agreements were put in place, and governance board members worked with senior management to get their buy-in. The governance board served as a critical change agent that could own processes, filter information flow and bring a business perspective to the shared service center, Hoffman explained. "Executive sponsorship was absolutely essential to make it successful. They're the ones who set direction for the company, not the shared service center."

The Hackett Group performs best practices research and process benchmarking. The conference featured presentations by executives from The Hackett Group and 15 other companies, including Accenture, Agilent Technologies, Autodesk, Equitant, FedEx Express, Hewlett Packard, KPMG International, Lafarge North America, Ogilvy & Mather Worldwide, ON Semiconductor, NCR, Piper Jaffray, Unisys, Williams Companies, and Hackett's corporate parent, Answerthink.